KEY EVENTS IN NC STATE
AND LOCAL TAX HISTORY
Joint House and Senate Finance, February 2, 2011
Cindy Avrette, Research Division
Panoramic View of NC’s Tax System
2






Origins and Development of the North Carolina
System of Taxation
Modernization Issues with the Current Tax Structure
Snap Shot of Today’s State Revenue Sources
Snap Shot of Today’s Local Revenue Sources
Presentations of the State and Local Taxes
General Information on Issues Related to Tax and
Finance Matters
Finance Committee Staff
3
Research Division
200 LOB
733-2578





Cindy Avrette
Trina Griffin
Heather Fennell
Greg Roney
Judy Collier
Fiscal Research Division
203 and 206 LOB
733-4910






First name.last [email protected]
Martha Walston
Rodney Bizzell
Barry Boardman
Sandra Johnson
Jonathan Tart
Brian Slivka
Panoramic View of NC’s Tax System
4
Origins and Development of the North
Carolina System of Taxation
 Modernization Issues with the Current Tax
Structure





Snap Shot of Today’s State Revenue Sources
Snap Shot of Today’s Local Revenue Sources
Presentations of the State and Local Taxes
General Information on Issues Related to Tax and
Finance Matters
Evolution of NC’s Tax System
5
Created Tax
System
1777
2nd act of General
Assembly
Evolution of NC’s Tax System
6
1782
License taxes
first enacted
Evolution of NC’s Tax System
7
1849
Corporations taxed on capital stock –
forerunner of franchise tax
Free
public
schools in
1839
Evolution of NC’s Tax System
8
Pre-1921 System of Taxation
1868-1900
• Property tax primary
revenue source for State
and local governments
• Low local assessments
led to high rates
• Continued pressure to
expand school year and
build roads
Evolution of NC’s Tax System
9
Revenue Act of 1921
No State tax on property
New taxes:
•State administered PIT
•Corporate income tax
•Motor fuel excise tax
1921
Evolution of NC’s Tax System
10
• Emergency Revenue Act of 1933
• State assumed fiscal
responsibility for schools, roads,
& prisons
1931-1937
Temporary
sales tax
of 3% on
TPP
enacted in
1933
Permanent
sales tax
enacted in
1939
Evolution of NC’s Tax System
11
Local Tax Sharing
• Excise taxes adopted
• Local tax sharing
programs adopted
• Local option sales tax
approved to relieve
pressure on the
property tax
1937-1986
Evolution of NC’s Tax System
12
Modernization of PIT
1986
Variable
component of
motor fuel tax
rate
1989
Highway
use tax
and Tax
Fairness
Act
1991
Budget shortfall
of 8.1%, State
sales tax rate
increased to 4%
Evolution of NC’s Tax System
13
“Bill Lee Act” incentives
Myriad of exemptions,
refunds, and credits
1995-1999
Tax Expenditures
14
Exemption

Exclusion
Deduction

Allowance
Level of scrutiny – Not subject to the annual
appropriations process
 Appear to be tax cuts –Transfer funds
through tax subsidies

Credit
Refund
Preferential
rate
Spending programs implemented through
the tax code
Key differences between tax expenditures
and direct spending

Biennial Tax Expenditure Report (2009)
300+ tax expenditures
 $5.8+ billion

Evolution of NC’s Tax System
15
Streamlined Sales & Use
Tax Agreement
2000
2002
2009
http://www.streamlinedsalestax.org/
NC’s Changing Tax Structure
16
Fiscal Year 1970-71
Fiscal Year 2008-09
CIT
5%
Other
24%
PIT
33%
CIT
12%
Sales
28%
Sales
31%
Other
11%
PIT
56%
Growth & Stability
17
Growth & Stability
18
Evolution of NC’s Tax System
19
Bust
1991
Boom
1995-2000
Sales tax
increase;
tax reform
studies
Bust
Boom
2001-2005
2006-2008
Various tax rates
reduced & tax
expenditures enacted
Bust
2009-2010
Temporary
tax
increases;
tax reform
studies
Tax Reform Studies
20




Fiscal Realities for the
90s
NC’s Tax Policy
Commission (2000)
Governor’s Studies in
2001 & 2002
IEI’s Financing the
Future (2005-2009)



State and Local Fiscal
Modernization (2006)
Economic Development
Incentives (2009)
Joint House & Senate
Finance Tax Reform
Meetings (2009 &
2010)
Message of Tax Reform
21
Findings

Tax structure too
complicated
 Tax
bases too narrow
 Tax rates too high


Tax revenues too
volatile
Tax structure does not
reflect current
economic environment
Goals




Simplicity
Economic development
& job growth
Revenue stability
Tax modernization
 Broad
bases
 Low rates
22
Questions?
Cindy Avrette
Research Division
Suite 200, LOB
733-2578
[email protected]